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Personal Professional & Independent AdviceThu, 26 Mar 2015 16:10:40 +0000en-UShourly1http://wordpress.org/?v=4.0.1January loan completions in Spain increase againhttp://www.imsmortgages.com/blog/january-loan-completions-in-spain-increase-again/
http://www.imsmortgages.com/blog/january-loan-completions-in-spain-increase-again/#commentsThu, 26 Mar 2015 16:10:40 +0000http://www.imsmortgages.com/?p=1961Total mortgages completed in Spain for dwellings in January were 20,913 up 20% on the same month of the previous year.

Key Data

The average loan size stood at € 105.792 an increase of 4.3% when compared to the same month of the previous year. At present there is no obvious trend that would indicate if this rise is due to prices of property stabilizing, and in some areas increasing, or a shift in the maximum loan to values that either applicants or Banks are looking at as confidence in the market continues to grow.

The level of capital lent exceeded 2.212 million in the month, and was up by 32.1% on the level of capital lent in December, and up 25.2% when compared to the January of 2014. In terms of number of new loans constituted when compared with the previous month total loans were up 31%.

Over 56% of all new lending was lent for the purchase of homes. There is little to be read into this statistic as it is normal that more than 55% of all credit lent is for this purpose. The fact that the split of secured credit remains relatively static, despite the increases both year on year and month on month, indicates that the general feeling that recovery is on its way is shared by buyers of homes, businesses and Banks alike.

5 Year trend

Whilst the overall increases were very significant, when analyzing the increases between the December and the January as a 5 year trend, at an increase of 32.1% this was in fact lower than the last 2 years. In 2013 mortgage capital rose by 47.1% January over December, and in 2014 this was 41.2%. When analyzed by numbers of new loans completed the percentages were 46.3% in 2013 and 40.8% in 2014. This is however against a backdrop of significantly lower overall numbers.

Variable versus Fixed rates

94% of all loans completed as normal on a variable rate with only 6% of all applicants electing to take a fixed rate. Historically most borrowers have taken variable rates due to a lack of competitive fixed rates being offered by the Banks, and due to high early redemption penalties linked to them. This is beginning to change with Banks offering reasonable long term rates the best of which for non residents, over 25 years, is 3.9% and lower early repayment penalties from as high as 4.5% to a more reasonable 1.5%.

Banco Sabadell has recently launched a new range of fixed rates products and in response to competition from lenders like UCI has reduced early repayment penalties significantly.

This change in the market will interesting to watch to see if overall access to good value and competitive long term fixed rates start to shift the split of lending between variable and fixed.

Interest rates

The average interest rate for completions in January, where it related to dwellings, was 3.29% and the average term was 21 years. At a rate of 3.29% the average interest charged has dropped by 20.6% when compared to the same month of a year ago. Some of this is due to a continuing fall in the 12 month Euribor but also reflects the reductions in margins now being charged as competition between banks to secure new lending hots up.

The 12 month Euribor continues and will remain the key index to which loans in Spain are linked.

Lending by Region

By region the Canaries showed the highest level of lending growth being up 99% on the same month of the previous year and 93% up on December’s completions. Other highlights for regions where International buyers focus their interest were, the Balearics up 35.1% year on year, Cataluña up 72.7%, Andalucía up 25.1%, Valencia up 26.25 and Murcia up 29.5%.

Only the region of Cantabria showed a decrease against January of last year, and Madrid previous acceleration slowed to an increase of 7.6%.

Andalucía, Cataluña and Madrid remained the regions with the highest absolute number of new loans granted all reaching over 3,000 in terms of numbers of. Madrid just pipped Andalucía in terms of capital lent with over 64 million and Andalucía close behind at over 63 million.

Ouflows and new objectives

Despite a far more aggressive approach to lending with all Banks looking to increase the number of loans and capital lent in 2015, net outflows exceeded new loans granted. This remains the big challenge for all Spanish Banks reversing the trend of reducing mortgage books to a situation where their balance of credits starts to increase.

Products are changing regularly now, new flexibility and improved service levels are being experienced, and many Banks like Caixa who launched Hola Bank this week, specifically aimed at International borrowers and clients, are proving non residents are no longer the shunned and unwanted that they were between 2007 and 2013.

]]>http://www.imsmortgages.com/blog/january-loan-completions-in-spain-increase-again/feed/0Loan levels in Spain increase againhttp://www.imsmortgages.com/blog/loan-levels-in-spain-increase-again/
http://www.imsmortgages.com/blog/loan-levels-in-spain-increase-again/#commentsThu, 26 Feb 2015 13:23:50 +0000http://www.imsmortgages.com/?p=1939Data published today for new loans constituted in December 2014 have shown another consecutive month of year on year increases.

Lending for homes

Loans registered at Land registry for the month of December showed an increase in capital lent, numbers of loans and an increase in average loan size.

15,962 loans were granted a 28.9% increase on the same month of previous year.

Capital lent increased by 33.8% and the average loan size rose by 3.8%.

The number of home credits also rose marginally against the previous month of November being up 0.4%.This month on month increase whilst small, is the first time in over 5 years that December completions have been above those of November suggesting the trend of increased lending is set to continue.

Lending for the buying of a home in Spain in comparison to credit lent for commercial entities made up 57.7% of all capital lent within the month in line with what is normally expected.

Of all the credit granted within the month 93.6% completed on a variable rate with only 6.4% of customers electing to take fixed rates. Fixed rates are not as readily available in Spain, are often well above the variable rates, and have much higher redemption penalties.

The average interest rate under which home loans completed was 3.50% which is 17% lower than the same time last year. This is partly due to the continuing drop in the 12 month Euribor, to which most loans are linked, and partly due to competition between Banks and a subsequent lowering of margins.

Loan levels by Autonomo region

Of the key regions positive growth was seen within the month in the regions of the Balearics, Madrid, and Murcia. Andalucía, who as normal had the highest absolute number of loans granted, showed a slight downturn when looking at the year on year figures falling by 3.9%.

All regions except the Asturias, Galicia, and Rioja showed an annual increase when considering number of loans in 2014 against the whole of 2013.

Results for the year of 2014.

In 2014 the provisional data shows that total number of loans when compared to 2013 rose by 1.6% on the year, level of capital lent rose by 3.8% and average loan size increased by 2.1%.

The total number of new Spanish mortgages in the year was 202.954 this compared with 199.700 in 2013. Whilst it was positive news to see an increase, the numbers were still never the less lower than the year of 2012 and half of the level of new loans granted in 2011. both of these years fell within the banking crisis and the economic issues in Spain. There is therefore some way to go before a sustained and real recovery in the credit markets can be said to have happened.

Cancellations

Whilst the Spanish Banks have had in place targets for the last couple of years and have been more aggressively looking to add new business there remains a significant negative outflow on the mortgage books. In 2014 202.954 new loans were constituted but 282.474 loans were canceled. This is an outflow of 79.800. For the Spanish Banks who at one stage wanted to shrink their credit book this outflow will be hitting the bottom line both in terms of interest earned and auxiliary products lost.

The Banks will need to see further improvements in numbers of loans in 2015 and a slowing of redemptions if they want to maintain earnings. This should increase competition and be good news for the consumer as pressure comes on the lenders to reduce margins further and provide a more flexible lending environment.

Since 2014 Spanish Banks have been back in the game of credit. This process has gathered steam during the latter part of 2014 and into 2015.

Rather than looking at their product portfolio as a total and deciding on pricing matched to criteria and offering a range of products flexible enough to suit each client, taking into account the quality and the profit for the Banks the Spanish lenders have decided instead to go into war with each other.

Standard pricing in most Banks remains high but all branch staff have been told do not lose an application on pricing.

Why a pricing war may not be good for all applicants

Whilst on the surface the practice of negotiating on pricing may seem like a good thing for the consumer in fact the reverse is true for most clients undertaking the application process. If you go into a Bank branch that is online for targets you may only get offered the high standard pricing and if the question about rate is not asked the branch may look to get the highest rate possible rather than offering automatically the best possible rate.

In some circumstances only if the bank thinks it is in competition with another lender will an applicant know how far the lender could be pushed on terms and conditions?

Branches who are behind on targets may offer initially to clients rates that their risk team finally will not offer which may mean applicants undergo the full application process before being sure what they think they are going to be offered is in fact what finally happens.

Impact on the Banks in Spain

For the Banks themselves, based on the understanding and quality of their branch staff, the profitability of lending may be driven by panic on targets, mistakenly believing they are in competition with another Bank or risk losing perfectly good applications due to lack of commerciality. Profit margins are in danger of being eroded.

To secure a mortgage Banks may now offer to waive bank account fees, remove compulsory products and negotiate on rates. There is nothing wrong with being willing to do this but Banks only seem to want to do it when in competition with another lender.

The control on lending now looks akin to an auction and it is difficult to see how in the long term this way of working can be good for mortgage applicants and Banks alike.

A more professional and commercial way forward

A much better way forward would be for the Banks to launch a range of products for those buying in Spain that take into account all aspects of lending. This would include flexibility and more sophisticated products for the top end clients along with sharp pricing and flexible and competitive rates for all applicants. The product portfolio should take into account the risk factors for Banks based on historic experience of client behaviors and loan to values etc and be priced accordingly.

Transparency so long missing from the Spanish mortgage market is now going backwards and in the 21st century with high quality underwriting tools, credit scoring and experience on back books it should not be beyond the Spanish Banks to behave in a professional consumer friendly manner instead of acting like market traders.

Mortgage figures released today by the statistical office in Spain have shown a healthy year on year increase in numbers of loans granted and completed of 14.2% when considering residential dwellings. The number of new loans for the purchase of a home reached 15,900.

The average loan size dropped by 1.7% to € 104.817 but given that house prices continued to decrease over the same period this is just a reflection of the market conditions.

Total capital lent for residential homes reached 1.666.6 million up 12.2% from the same month in the previous year. The average term over which a mortgage runs was 21 years.

The numbers are in line with the loan data being reported by the Notaries whose figures are based on completions not yet registered at Land Registry in comparison to the INE who extract their data from Land Registry.

Breakdown of Capital lent

From the total of securitized loans which include commercial lending and personal loans, 53.6% was lent for the purchase of a house. Mortgages secured for the purchase of land made up 8% of the total capital lent and Rustic buildings a further 8%. Commercial lending made up the total at 30.3%.

Inter-monthly trends

Similar to the month of October there was however a continuing trend in a fall in the number of loans between the months of the current year. In November the amount of loans dropped by 10.1% when compared to the month of October. This is the largest decrease in 5 years. The capital lent was also down from October by 5.6%. This suggests buying patterns have changed slightly and is also partly due to no drivers pushing buyers in Spain to complete before the yearend as we have had in other years.

Interest rates

Of the mortgages constituted in November 92.6% where on a variable rate basis, only 7.4% of loans completed with a fixed rate. Variable trackers remain the favored product choice of mortgagees and Spanish Banks.

The average interest rate was 3.49% some 18.6% lower than November 2013. This is partly due to an easing of margins but also significant drops in the 12 month Euribor the index most widely used in Spain.

Spanish Banks have been cutting margins over the last 12 months particularly for the resident population but also minor changes for nonresident borrowers. This trend had looked to continue through 2015 as competition between Banks grew and higher budgets were put in place. Out of the blue in an unexpected move Sabadell Bank who has been the most active of all lending Banks raised margins above Euribor this Monday. This move was announced at the same time as higher targets were put in place for 2015 leaving employees bewildered as to the rationale.

Impact of higher margins

Margins above Euribor are well above that of a few years ago but standard pricing with this Bank has now moved back up to above 4% for the first year and above 3.5% for subsequent years. The move puts Sabadell behind other Banks in its competitiveness and well out of Sync with rates in other countries like the UK and France. How long before a lack of business reverses this move remains to be seen.

Profit has two drivers numbers of loans and margins. High margins and no loans still equal low profit. Given that all Banks in Spain add to the mortgage compulsory and profitable products like life cover and bank accounts a drop in the number of loans even with higher margins could put pressure on Sabadell as the year moves forward.

Regional differences

Andalucía continued to be the region with the most loans granted but Madrid with lower numbers due to house prices lent more Capital at 382.935 million. Most regions now show an annual increase in both numbers of mortgages and capital lent and should end the full year up from 2013. Interestingly the Balearics a favorite of international buyers showed another decrease in November and has the highest annual decrease of all regions.

Cancellations

The margin between mortgages canceled and new loans narrowed slightly but there continued to be a net outflow with 23,792 redeemed or cancelled home loans in the month and 15,900 new home loans moving onto the books.

The Spanish mortgage market moved forward in 2014. From a prolonged period of stagnation with most lenders looking to reduce their overall mortgage books finally in 2014 the trend was reversed.

Spanish banks launched a new product with improved terms and conditions, also introduced loan budgets and targets for the first time in over 6 years.

Other changes to the lending market

Other factors affecting borrowing in 2014 were a backtracking on the very aggressive process of repossession. Under direction from the government certain categories of defaulters were given time to sort their situation out and evictions postponed.

2014 saw a removal of the previously standard practice of incorporating minimum floor rates into mortgage deeds so that despite reductions in Euribor mortgagees did not gain benefit.

After challenges in the courts all Banks removed floor rates from their new deeds and most, when approached by an existing client, removed the floor rate for existing borrowers. The courts are stipulating that the Banks should pay compensation on higher interest paid by those unfortunate enough to have been caught with high minimum rate but it is still not clear on how binding this is. Unlike the UK where for misselling of product Banks are instructed as to what level of compensation they must pay and to whom the Spanish government nor the Bank of Spain has laid down what must happen to those affected in the past by floor rates.

Margins and compulsory products

Whilst in general margins above Euribor decreased with Banks in 2014, most added compulsory products to the lending to shore up profitability. For residents of Spain all loans are linked in term of rate to the amount of other products the mortgagee holds, this type of practice was stopped in the UK some years ago. For non residents many Banks will insist that life cover is contracted with them as a pre-requisite of lending. This life cover is necessary for the loan even if the client can demonstrate they have sufficient existing life cover in place. It will remain to be seen if like floor rates this practice will backfire eventually on Spanish Banks.

So what is new for 2015.

2015 will see an increased number of Banks wishing to lend and add to their mortgage book. This is already being demonstrated with a number of lenders who in 2014 were not lending to non residents confirming in the last couple of weeks they now have product.

Competition is slowly but surely growing. Many Bank staff are being told not to lose a good application on pricing so whilst their standard offering may not be that competitive if they are in competition with another lender they will consider matching terms and conditions. This can work very well for a few clients who can play one bank off against another but is an old fashioned approach to approving lending leaving the majority of clients unaware and lacking information at application stage.

Why lending transparency is important

Given arranging a mortgage takes a few weeks and the buying process in Spain requires non refundable monies are paid at purchase contract applicants can find themselves finally being offered an unsuitable and costly loan sometimes after having to pay for a valuation, and then having to go through the process again with another Bank to achieve a reasonable rate.

Many Banks give branches or regions flexibility to charge whatever margins they think they can get which leaves direct applicants very vulnerable to not getting offered the best a Bank could offer and is good reason for applicants to use an independent broker to find the best terms available.

How the Banks should approach product terms

The more commercial of the Banks will make a standard offering providing transparency and clarity upfront. They may still be willing to flex terms for a high quality applicant but having a standard offering means a client knows what they will be offered if the loan is approved and can make a decision at application which Bank to apply to.

Reducing and improving overall mortgage terms should become the target for all Banks during 2015 rather than looking to grab one off cases from a competitor by matching or going below what the client has already been offered.

Current terms and conditions

For buyers buying in excess of € 250k margins above Euribor achievable are now at their lowest point for many years. It is envisaged that as the Banks look to grow lending facilities further we will see further reductions in margins for smaller purchases and loans.

Whilst back in 2013 average margins above Eurinor were 4% or more we are now seeing average margins above Euribor between 2.5% to 3%. Whilst these reductions are good news the margins are still relatively high for new borrowers. Overall rates are low due to the Euribor being at its lowest point ever but as the Euribor increases again a margin of 3% or more does not look very attractive.

It is unlikely we will ever see margins above Euribor as low as in the past but it would be good for the market in general if they dropped to below 2% as standard. As competition grows and the Spanish Banks themselves stabilize this should become possible.

Fixed rates

Fixed rates for many years in Spain unattractive to most borrowers have started to creep into the market at more reasonable rates. In Spain you can fix for up to 25 years and with rates of around 4.65% for the full term. Fixed rates have now become something applicants should consider. Key issues with fixed rates remain that it is not possible to secure by way of an admin fee the rate available at application and that early repayment penalties are normally high.

One lender has shorter term mixed fixed rates reverting to variable after the fixed term period and penalties are only 1.5% however for most fixed rates overpayment penalties are up to 4.5% for the lifetime of the loan. With variable redemption penalties being 0.50% first 5 years and 0.25% thereafter applicants requiring flexibility to overpay may still find variable rates more suitable.

Loan to values

Loan to values for most lenders over the past few years has not exceeded 60% for nonresident applicants. Whilst only two lenders currently offer 70% as standard we are starting to see for specific quality applications more Banks approve on a one off basis 70% loan to value. This may be an indication that as 2015 progresses more Banks will re- introduce 70% lending as standard. It is unlikely any lenders will increase loan to values to 80% for non residents as even back in the days of aggressive lending few Banks offered this level. The major change between now and then remains the fact that banks no longer lend against valuation but purchase price or value whichever is the lower of the two.

Interest only

Interest only which disappeared completely from the market on the sale of Lloyds Spain to Sabadell will not come back as this facility was removed under pressure from the Bank of Spain. All loans in Spain will remain of a repayment nature with terms of up to 30 years with 25 years being standard. It is also unlikely that Banks in Spain will increase age limits above the current maximum of 75 years.

Underwriting criteria

Affordability criteria’s are unlikely to change dramatically in 2015. A more morganatic approach to the financially more complex applicants may find its way into risk assessment as completion grows and targets have to be met but overall the general practice of expecting the applicant’s outgoings on debts and loans to not exceed 35% of net incomes will remain in place.

Banks may start to take a more sensible approach for self employed company owners recognizing, which they do not do currently, that retained profits not drawn and taken on a personal tax return can still be classed as personal income. Monies that avoid the tax system entirely however will remain a no no when risk assessing as the Banks could not justify lending to their regulator or meet money laundering regulations, if they were to go back to taking into account what flows through a Bank account but does not get fully declared.

Multiple property owners

Applicants with more than 2 or 3 buy to lets in their country of residency will continue to be classed as investor profile and will experience more difficulties in gaining an approval than those with lower numbers of other properties or only their main residence. Historically multiple property owners have been more likely to default and the Spanish Banks see them as over extended and their financial situation fragile with a possible risk of being exposed to the property market in their own country suffering a downturn or a significant interest rates rise.

Whilst in some countries like USA and UK having a high number of performing debts is seen as a positive in Spain the reveres is true and will remain so. High credit scores are of little consequence to the Spanish Banks who focus on affordability ratios and the amount going out each month. Applicants with poor credit history and missed or late payments will continue to find themselves precluded from Spanish lending.

Use of credit files

All Banks now require some evidence is provided of existing debts and the performance of these debts even if the country of residency does not have credit file facilities. This forms a large part of the application process.

Despite little change to affordability ratios it remains the case that on most occasions a second home buyer in Spain can obtain a higher level of lending than they perhaps could if buying a main residence in the UK or elsewhere particularly of they have little debt already.

Remortgages

Remortgages remain an area the banks are not currently interested in which seems a little strange given there is a good opportunity to take over at lower rates quality performing loans particularly given anyone who contracted a mortgage between 2010 and 2013 will have done so at very high rates. Spanish Banks remain however focused on purchase loans. 2015 may see a shift in this area once one Bank wakes up to the fact they can take on profitable and performing loans for existing mortgagees rather than just offering loans to new borrowers.

Generally it is good news for buyers in 2015

Overall we can expect a further increase of lending facilities with more credit being offered in 2015 but within the laid down boundaries. This will be good news for potential buyers in Spain who wish to take advantage of the very low property prices post the boom years.

This week an article in the Mail online outlined the continuing issue buyers in Spain are experiencing with the regional tax offices in Spain.

When buying ITP is payable which is the equivalent of UK stamp duty tax. This tax level varies from region to region with Madrid being the lowest at 6% and the highest in Barcelona at 10%.

During the property boom years to avoid both capital gains tax and purchase tax buyers and sellers often partook in an element of black money so declared the purchase at Notary at a lower price and exchanged cash, this was often up to 50% of the actual price being paid.

Spanish Banks involvement

When high levels of taxes were flowing into the regional coffers everyone turned a blind eye to this tax avoidance activity this included Notaries, Lawyers and Banks who were all aware of what was happening. It was just indicative in the system and seen as acceptable.

Spanish Banks at this point in time lent against valuation not purchase price so even when a buyer required a mortgage it did not affect their ability to avoid paying the true taxes.

The current situation

Move the clock onto 2013 and 2014 and the complete reverse is now true.

Black money after the jailing of various notaries and a clean up in the system is no longer considered acceptable and has more or less been removed from the buying process altogether. Buyers are made aware by their lawyers to participate in such activity would be a criminal offence and Spanish Banks only grant mortgages against a maximum loan to value of the purchase price being declared.

Property prices have dropped considerably and many true bargains can now be found.

The problem is that Spanish tax authorities somewhat after the horse has bolted and under pressure to bring in as much revenue as possible are now looking at the minimum fiscal values recorded against each property at the Town Halls, and if a property sells for less than this, claiming that an element of cash made up part of the transaction and are claiming further purchase taxes after completion on this basis.

Minimum fiscal values

The fiscal values have not been adjusted to reflect the current market conditions so many people are buying under what the tax authorities consider market value and being caught out even though they have genuinely not been involved in any tax avoidance.

We have moved from rape and pillage of the Spanish tax system with buyers and sellers systematically participating in tax avoidance to the reverse where genuine bargains and completely authentic transactions are being questioned. The Spanish tax authorities claim first and ask questions later and failure to pay the extra tax demanded just results in fines even if the buyer or seller is in fact in the right.

A good lawyer will check the minimum fiscal value before completion and may advise a buyer just pays transfer tax on the minimum value to avoid future issues or at least warns their client of the possibility of a claim from the tax office at a later date.

None of this is fair but many things within the Spanish tax system are unfair and lack transparency. Of course the fiscal values should in fact be adjusted to reflect the current market values this would allow the tax authorities to still question unrealistic purchase prices but allow for the fact prices have dropped by over 40% in the last few years.

How taking a mortgage might help

In terms of fighting a claim having a formal Bank valuation will help so for those buyers taking a mortgage they will have substantiated evidence that the price they have declared as paid is in fact the correct price. Valuation companies are managed by the Bank of Spain and must follow clear laid rules when assessing the value of a property.

Sadly for now a number of buyers will find the tax office pursues them and the reality is this is a backlash to the high levels of tax avoidance that happened between the years of 2002 to 2007.

One can only assume that the investment companies that have bought up large tranches of stock from SAREB and direct from the Banks, supported heavily by the Spanish government, have had a moratorium granted for themselves and that no regional tax office will be able to argue they paid below market value and therefore owe more tax. If this is the case the Spanish politicians need to start to look at how it is affecting individuals before the regional tax offices disrupt the property recovery.

October’s completions as reported by the INE in Spain showed an unusual but small decrease in the average value of capital lent for residential purchases in October.

Numbers of mortgages however increased by 18% over the amount of the loans constituted in October 2013 so actual capital lent increased. For Urban property the amount of money lent was 3.299 million an increase of 21.7% and across all dwellings 1.7663 million was lent and annual increase of 14.9%.

New loans granted for dwellings formed 49.1% of the total capital lent by the Spanish Banks in October.

Credit trends

Due to an increasing level of new credit being taken over the last few months, the difference between new loans in September to October, as a trend over the last 5 years, showed a decrease. Month on month it is normal for fewer loans to be constituted in October to September but the decrease due to high levels of activity in September 2014 was down by 8.5% when considering numbers of loans and by 15.2% when considering level of capital.

Interest rates

As normal the majority of loans granted were taken on a variable rate basis with only 7.2% of mortgagees electing for a fixed rate. The average interest rate at which credit was granted was 3.60% which is 14.1% less than the same month of the previous year. The drop in interest rates is partly due to a decreasing Euribor level which is currently at an all time low for credit purposes standing at 0.329%, and a continuing response from the Banks in Spain to competition and a lowering in general of margins being charged and more best buys.

Regional variations

By region Andalucía had the highest number of loans in the month followed by Cataluña and Madrid. The capital Madrid saw the highest level of capital lent. Interestingly Madrid however had the biggest decrease in numbers of loans when looking at Septembers completions.

The Balearics having had a few months of rather depressed lending levels showed in October the biggest increase when looking at the regions between numbers of loans granted in October to September.

Conclusions

Despite the more positive lending levels the number of loans cancelled yet again outstripped the number of new loans granted which will continue to put pressure on the Banks to increase lending levels through 2015 to prevent a further hemorrhaging of their books and the subsequent loss of earnings this will bring.

When looking to obtain a property loan in a foreign country it can be a good idea to appoint on your behalf an experienced and professional advice company.

A good adviser can ensure you understand the idiosyncrasies of the market and that you have access to the best possible products.

One should not automatically assume that in a country like Spain the lending market works in the same way as it does in your country of residency, or that Banks are regulated in the same way and are obliged to work in the same manner as say a UK Bank.

How Spanish Banks differ

In Spain many banks have set products but leave local management to offer terms and conditions that may vary from those outlined by Head Office. Normally this local discretion is used to charge the highest amount possible on rate rather than lowest, and in many cases branch staff do not even know what the best is that they could offer a client.

A good example of this is Sabadell who has a premier product available for purchases over € 250k. If as a direct client you walk into one branch of the Bank you may actually be offered the premier product but this product has a range of rates and you may not be offered the absolute best rate possible. If you walk into another branch of the same Bank they may not know about the premier product, or if they do, believe it is only open to EU residents not those living in the rest of world.

This lack of knowledge about product availability and no central control on terms and conditions means direct applicants often do not get offered the best possible terms the Banks in Spain can provide.

The application process

During the application process documents provided from Spanish Bank relating to the product and risk assessment are often presented to clients in a manner that suggests an approval has been given. Applicants can be confused by the lack of clarity about where in the process an application is. In countries like the UK an approval document from a bank has some validity, applicants can assume an official looking document from the Bank means they have an offer. This is not necessarily the case. In order to have an offer the full file will have been sent to risk and a valuation undertaken, anything given before this point is meaningless.

Full Transparency

Spanish Banks do not always work in the same way as Banks in other countries and whilst things have improved in terms of transparency, due to language barriers and assumptions applicants know how Spanish mortgages work already, it is often the case a direct applicant does not get given a full or proper understanding of what the product terms are and how a loan in Spain is secured.

Branch staff, not experienced in the paperwork that a client can provide, will often request the minimum documentation for risk assessment, this can cause a large amount of time wasting whilst the file goes backwards and forwards from Head Office to the branch with further requests or matters for clarification. A professional and experienced broker will make sure where possible the application is packaged sufficiently and all matters clarified to allow an underwrite to happen on first presentation of the file.

Timescales

On average a broker will be able to get an approval within a couple of weeks of receiving a full file, a direct application often takes up to three months and can disappear into a black hole depending on the difficulty of the application and the work load of the staff member managing it. An independently appointed advice company does the chasing for the applicant and ensures that the application is dealt with quickly and effectively.

Paying for a service

When accessing the service of a mortgage advice company an upfront fee what should not be paid. All lending intermediaries are likely to have fees, but these should be payable on results not application. If an adviser is only taking a fee on the successful approval of an application there is little to lose and everything to gain by using an independent adviser to access the most suitable product for a Spanish purchase.

For another consecutive month the amount of loans contracted by borrowers in Spain, during the month of September, increased again. This is now the 4th month that lending for dwellings has shown an increase after years of Spanish Banks reducing the loan levels and general low levels of activity for both home finance and purchasers in Spain.

The increase in credits approved is good news for buyers and the housing market. Along with higher levels of buying activity across both the national and international buyers base, Spanish Banks have also been more aggressively approving loans and have been reducing previously high margins above Euribor along with a slightly more flexible approach to risk assessment within the application process.

In complete converse to the Spanish Market the UK home loan market is decreasing. News out on Tuesday from the lending council confirmed that UK lending approved dropped in October by 16% and was it its lowest level since 2011. The drop in UK home loans is attributed to both a cooling down in the housing market and tougher lending rules implemented by the government in April 20014.

Highlights for Spanish home loans

Mortgages in Spain constituted at land registry in September for dwellings totaled 19,323 this is 29.8% higher than the same month of the previous year.

The average loan size rose 10.6% to € 107.850 the highest average value in more than 12 months.

Capital lent rose by 35.3% above the month of August and was 43.5% higher than the same month of the previous year.

53.7% of all loans were granted for urban dwellings.

Year on year trends

Whilst for the total year the number of new home credits, constituted is lower than the same time in 2013 this drop is now only minus 3.2% and if the current trend continues the 2014 should just about end up level or slight above 2013 figures.

The increase in numbers of new loans between the month of August and September was the highest it has been for 5 years and this is also reflected in the amount of capital lent.

Interest rates

The average Interest rate for the month of September was 3.59% down 13.5% on the same time for last year. The Euribor stands at 0.338% for the month of November the lowest on record and this drop in Euribor alongside an easing on Banks margins has contributed to the drop.

93.3% of all contracted home loans were on a variable rate basis continuing the normal trend for floating rates than fixed in Spain.

Regional performance

Madrid completed on the most loans and by quite some way the highest level of capital in month suggesting the Capital Cities population are feeling positive about the overall, situation in Spain and staring to buy and borrow again.

Andalucía also performed well but the Balearics and the Canaries who have previously weathered the crisis better than most are showing distinct signs of a slowdown.

Cancellations

The gap between home loans cancelled and new loans constituted fell to its lowest level in many years with 19,323 new credits and 20,655 cancelled credits.

August loan completions increased in August both in numbers of and capital lent against the same month of the corresponding year.

The average value of home finance in Spain also spiked, up 5.8% to € 102.430. Average loan sizes are now up on an inter-annual accumulated basis when looking at 2013.

The total loans registered at Land Registry for the month, secured against dwellings, stood at 15,040 which is 23.8% higher than August of the previous year. Whilst the month’s figures were significantly up year on year accumulated the numbers remain 6.6% behind 2013.

Borrowing for residential properties exceed 1.500 million Euros 31% higher than last year but 5% below the total lent by this time in 2013.

Of total funds lent 43.5% were granted to dwellings with a similar amount granted for other urban property relating to commercial ventures rather than housing. A much smaller amount was lent against land and Rustica properties.

Is all the news good.

Whilst on the face of it this all seems to be good news the decrease in the number of new mortgages registered between the month of July and August was the highest of last 5 years. Numbers of new loans registered in August against numbers registered in July this year dropped by 16.9%. This may partly be due to a significantly higher level of activity in July this year.

Borrowers product preferences

There was no movement in August in terms of split of types of loans with 93.9% of all loans being taken out on a variable rate basis with only a very small handful of applicants choosing to contract a fixed rate. In Spain most mortgagees elect to take a variable tracker due to the higher redemption penalties and lack of competitiveness of fixed rate offerings when put side by side with variable margins and current Euribors.

The average rate for household finance in the month was 3.76% down some 12.4% from last year due mainly to a significant drop in the last 12 months of the 12 month Euribor.

Regional high points

Andalucía remained the region with the highest number of new loans constituted followed by Madrid and Cataluña. Madrid secured the highest level of capital as average loan size exceeded other areas. All regions except for the Balearics saw a drop in number of new loans when compared to the previous month of July but all regions except the Canaries and Rioja La saw a large increase in numbers when compared to the corresponding month of the previous year.

Redemptions versus new borrowings

The total number of home loans canceled with the Spanish Banks in August was 18,822 yet another consecutive month of net outflows. The margin however between the amount of mortgages being redeemed and new finance being taken has narrowed considerably from where we were a few months ago.

For many months and years it has not been unusual to see redemption numbers being double of that of new loans causing significant hemorrhaging of the lending book for all Banks in Spain. This outflow seems to be slowing and is necessary both for long term profitability and to help the Banks reduce the arrears as a percentage of their total book.

Replacing redeemed and defaulted loans with healthy new finance whilst not stemming the default numbers does ensure as a percentage of total borrowings the defaults start to drop.